James Mawhinney in Mayfair 101 penalty showdown

Lawyers for Mayfair 101 have traded blows with ASIC in a penalty hearing after earlier findings against the company and its head James Mawhinney.

Mayfair 101 head James Mawhinney. Picture: Ally Lombardo

Mayfair 101 head James Mawhinney has insisted everything done at his company was within the guides of legal advice as he battled to block the corporate regulator’s attempt to impose up to $12m in fines.

In the Federal Court on Wednesday, Mr Mawhinney said Mayfair 101 had only sought to attract “wholesale investors” and had been advised its investments weren’t bound by the same rules on “retail investors”.

“The legal advice we had at every stage of establishing the notes managing the notes we were informed was compliant, I was not aware of the regulatory code,” he said.

“I was of the view that paying a professional mid tier law firm every aspect of our advertising was a sufficient standard to ensure we were compliant.”

However, Mr Mawhinney noted he had not sought to call, nor thought to call, KHQ lawyers to appear in the case.

Senior counsel for the Australian Securities and Investments Commission Jonathon Moore was sceptical.

“ASIC said one of the worst aspects of this case was that ASIC had a regulatory guide which was applicable to advertising ventures, applicable to the Mayfair debentures, and notes and the company seemed to thumb their noses,” he said.

“You’re saying ‘we got specific oral advice to the country’ that this guide did not apply to the Mayfair products?”

The two day hearing comes after the Federal Court found against Mr Mawhinney in March this year, with Justice Stewart Anderson ruling Mayfair had engaged in misleading or deceptive conduct in relation to financial services.

Justice Anderson, the same judge who imposed the 20-year-ban on Mr Mawhinney in a separate matter, found Mayfair had made misleading statements in relation to its M+ and M Core Fixed Income Notes, which had exposed investors to significantly higher risks than bank deposits.

In the hearing on Wednesday Mr Mawhinney’s senior counsel Michael Pearce argued ASIC and Deloitte misunderstood Mayfair’s assets, and wrongly assessed the business as insolvent.

In a back and forth round of questioning with Deloitte partner Jason Tracy Mr Mawhinney’s barrister argued the auditor had wrongly concluded Mayfair 101 was in a financially precarious state, a move which saw the corporate regulator file to wind up the company’s investment schemes.

Mr Tracy said Mayfair had a “substance over form problem” which had seen a lack of security around investor’s funds.

The legal fight, one of several skirmishes before the Federal Court involving Mr Mawhinney, comes in the wake of a 20-year-ban on promoting financial services and products imposed by ASIC.

Mr Mawhinney, who lost his Melbourne house after reportedly defaulting on his mortgage, has reportedly secured funding for his case “with the backing of various financiers in a manner that is compliant with court orders”.

“No financial products have been offered by Mayfair 101 or James Mawhinney since ASIC obtained interim injunctions on 13 August 2020,” Mr Mawhinney’s spokesman said.

The Mayfair 101 empire burst on to the business scene on the back of a high profile advertising campaign and a gambit to build a tourism mecca on Dunk Island and Mission Beach in Far North Queensland.

The finding against Mayfair came just weeks after ASIC also applied to wind up the M101 Nominees unit, which issued the notes.

Mr Mawhinney’s Dunk Island dreams have now been dashed, with the freezing of assets causing Mr Mawhinney’s company to default on its $31.5m purchase from the Bond family.

The island has since been snapped up by UpSense Media Capital which plans to reinvigorate the dilapidated resort on the island that was thrashed by Cyclone Yasi in 2011.

The case continues.